EU proposes crackdown on anonymous cryptocurrency payments

The Financial Action Task Force (FATF) proposed a law to apply the travel rule to cryptocurrency transactions, rendering them traceable. This rule already applied to conventional wire transfers. It forces the sender and recipient to exchange certain identifying information when funds are transferred between financial institutions.

Under the proposal, a company handling cryptocurrency for a customer must note the customer’s name, address, date of birth and account number, and the name of the recipient. The company handling the recipient’s account must then check that all this information is correct and present.

Just as anonymous bank accounts are illegal under EU anti-money-laundering rules, anonymous cryptocurrency wallets will also be prohibited.

“We shouldn’t have different rules for the financial system. They should apply across digital currencies as well,” said EU commissioner for financial services, Mairead McGuinness, during a press conference. While some cryptocurrency service providers are already governed by existing anti-money-laundering laws, the new proposals would extend those rules throughout the cryptocurrency sector.

The European Commission said in a statement: “Given that virtual assets transfers are subject to similar money-laundering and terrorist-financing risks as wire funds transfers […] it therefore appears logical to use the same legislative instrument to address those concerns.

“Today’s amendments will ensure full traceability of crypto-asset transfers, such as bitcoin, and will allow for prevention and detection of their possible use for money laundering or terrorism financing. These proposals have been designed to find the right balance between addressing these threats and complying with international standards, while not creating excessive regulatory burden on the industry. On the contrary, these proposals will help the EU crypto-asset industry develop, as it will benefit from an updated, harmonised legal framework across the EU.”

The proposals must be approved first by EU member states and the European Parliament. This means that the proposals could be substantially altered, and may not become law for two years.

The FATF’s wider proposals include the establishment of a new EU body by 2024 with 250 or so members of staff to supervise high-risk financial institutions, and prohibiting cash transactions higher than €10,000.

The EU recently unveiled its plans for its own “digital wallet”, which would allow citizens a simpler way to access public and private services. The proposal was reportedly prompted by requests from EU member states to find a secure and simple way for their citizens to access services online amid a surge in use of digital services during the Covid-19 pandemic. It is expected to be fully operational by around mid-2022.